Hey guys it’s Nef here, I want to mention my upload frequency first. I will try my best to upload one video per month. Although that’s pretty hard for me already, I still take your 「kindly」 reminders seriously. It took up so much time to produce each video. I also need to manage myown business while making high quality videos. One video every four weeks is already quite productive right?
This video is about a topic that was brought up long time ago and was already discussed extensively. Yet, some widespread statements are highly misleading. I will walk you guys through them one by one and try to narrate the process cinematically as much as possible. All the figure and data come from my frequently-used tools and several databases; public data and reports from various Japanese government departments; Japanese bibliographies and writings on economic research along with various academic papers. The figures and data are more intensive with this bigger subject. Without further ado, let’s get started.
Time flash back to World War II. Japanese trade was restricted by the war itself and the postwar United States. Japan ran into a shortage of supply. According to the commodity statistics in the 「White Paper on International Economy & Trade」 from the Ministry of Economy, Trade and Industry, or METI, post-war production and imports were less than a tenth before the war. Some categories were even less than a hundredth. Meanwhile, the end of military production after the defeat led to an unemployment of more than 4.2 million related workers. Coupled with the destruction of the domestic production system, the shortage increased vehemently.
The Government Housing Loan Corporation, or GHLC, loosened the credit loan in 1947 and promoted capital construction.(Disbanded years later) Inflation was soaring. Most transactions in Japan were done through the black market. On the basis of the work 「Modern Japanese Economic History」 by Takemaro Mori and Yoshio Asai, there were more than 17,000 black markets in Japan&39;s Life were completely destroyed. Drowning in the deep water, the United States handed out the olive branches. It was under the bipolar structure of the Cold War, the U.S. had lost China, an important fortress in the far East, because the success of revolution in China. So, the U.S. came after Japan in order to contain and impede the progression of the Soviet Union—plus that Japan also had a special geographical location in Asia. The U.S. chose to implement foster policies on Japan. Japan was provided with technics and economical intervention to reform the country. The head-to-toe reform has become the cornerstone of Japan&39;t take long for this force to be removed by political opponents. On the one hand, there was political struggle, but on the other hand, it was the choice of the 「people,」 the reason was simple—for survival and benefits. The United States also sent Japan a gift —— the Korean War.
The Korean War brought large military orders to Japan. This was a great shot in the arm for Japan’s economy. There was even a special name for this: 「Korean War Special Procurement.」 The orders put Japanese factories back into operation. The workers could work and eat. Government also received stable foreign exchange earnings. Relying on the U.S. could generate real economic benefits. According to the data from 「Meiji Constitution and National Mobilization Law: annual report: Modern Japanese Studies(4)」 from Nagao Ryuichi: The foreign-exchange dividend brought by the Korean War exceeded the national dividend by 30%. In the narrow sense, special requirements were arms, equipment, related transportation, maintenance and repairment. In the broad sense, special demand was the supply and service for the army and its families. The 「Special Procurement」 continued for years after the cease-fire.
If you are getting confused, then just skip to the last line. Over the years, these special orders brought 5.2 billion. Now compare this to the 2 billion that the U.S. provided between 1946—1952. The contribution of this war was crystal clear. In my opinion, this war money was Japan&39;s foreign exchange reserves increased from 290 million in 1950 to 1.18 billion dollars in 1952. Mechanics transport, shipbuilding, steel, chemical and war-related industries were recovering. Companies were also taking advantage of this occasion to introduce U.S. technology. After years of accumulation, Japan&34;Princes of the Yen.」 It took the Bank of Japan as the thread to tell the evolution of Japan and revealed the dispute between central bank&39;s economy in the 1960&39;s export-oriented economic model remained strong.
By the 1980s, the seeds sown for scientific research and education 20 years ago had taken root. A group of high-quality elites have become the backbone of various industries; semiconductor, commercial computers and related equipment joined the trade battlefield. Based on data from Japan&39;s foreign exchange reserves exceed $90 billion, ranking first in the world. In 1990, Japan&39;s really annoying to hear. As if any booming economies could buy America. That was what others used to say to us years ago. We can’t even tell which team does the speech-maker belonged to. We all know what happened at the end anyway.
In 1983, the Japanese stock market soared from more than 10,000 to nearly 40,000. The whole value of the market has tripled. The total market value of Japanese shares at the end of 1989 was about $4 trillion. That was close to half of the global value of market. At the time, half of the international capital markets were in Japan. At the end of 1989, at nearly 40,000 points, economists all said that Japan will win. Traditional economic theory was no longer applicable to Japan, Japan was creating brand new economic principles. Human civilization will be rewritten. Any reports suggesting risk was labeled unpatriotic, everyone is bullish. Some straw man started to say that 40,000 was just the beginning, Japan was going for 60,000. No one could calm down. Just go long and all in. Property and stocks were appreciated at tens or even hundreds of thousands a day.
Everyone was millionaire. Everyone was shopping crazily, investing, getting drunk. The Japanese started buying American real estate. This once led to 47% of property in downtown Los Angeles being owned by Japanese. 90% of the investment on apartments and hotels were from Japan according to the investment statistics on foreigners&39;s also a popular story: for a five-minute drive, a middle level manager who squander a million on cabs. This was insane even if everyone was rich. After doing some digging, I found that this story came from the August issue of the 1988 「Shūkan Bunshun.」 Everyone who knows this magazine should also be aware of its nature. The authenticity of this story was suspectable. So maybe just treat it as a rumor and don’t take it seriously.
Japan&39;s purchase of Columbia Pictures in 1989, Mitsubishi bought 51% of Rockefeller for $846 million in the same year and gained control of the Rockefeller Center. The Rockefeller Center was a national landmark identified by the U.S. government. American media sensationalized this as the 「Japanese Threat Theory.」 Saying that Japan launched another Pearl Harbor incident with capital weapons.
In general, protectionist mergers and acquisitions would usually be blocked. However, this deal was closed amongst controversy and polemic. After that, Mitsubishi bought the remaining 49% in batches. The reason why this deal was closed is simple: Japan had the money and America needed the money. This was not done yet. At the time, Japanese companies made more than 21 M&A that each worth over 50 billion, 18 of which were US companies. To sum up, Japan was upgrading through export-oriented industries and continuous technology improvement by breaking through brambles and thorns in the international trade market and saved a great amount of fortune. Domestic markets were thriving. New records were set continuously. Japan went from thrift to extravagance and began to splash out money around the world.
Japan’s amassed fortune supported them to do so. Moreover, the U.S. economy was not doing well indeed. Stagflation happened in the state in 1979. You probably all know what inflation means. Stagflation means 「Stagnant Inflation」 or slow GDP growth along with rapidly rising prices. Look at the two figures here, GDP was going all the way down while CPI spiraled up. Uncle Sam’s solution was to force inflation down by raising interest rates. For sure, Inflation was curbed, but higher interest rates have led to higher exchange rates which consequently affected America’s export. I explained this situation in the Hong Kong issue. Trade deficit increased due to the impact on export. All this attributed to the mounting budget deficit.
As mentioned above, at this time Japan exports was sweeping across the world. Japan and the United States trade friction emerged. Let me get this straight, basically, in textiles, home appliances, steel, semiconductors, automobiles; mostly because Japan was selling too well; especially for the car industry. Remember when America helped Japan back then? Japan rewarded the U.S. with massive invade in the market. The rise of Japanese brands represented by Toyota and Honda contrasted sharply with the decline of the U.S. automotive industry.
In the early 1980s, more than 60,000 workers were unemployed in the U.S. auto industry. Coupled with America&39;s even more ridiculous to say that the Plaza Accord was an American scheme against Japan.
These countries started selling dollars because of the Plaza Accord. Japanese Yen began to appreciate as their currencies rose relative to USD. The exchange rate of Yen has doubled from 1985 to 1988. This is the monthly mean curve of Japan&39;s ambiguous attitude of 「financial liberalization」 toward foreign capital enabled a large number of International capital to swarm into the two 「reservoirs」 as expected —— stock and property market. The housing and equity boom have attracted more money. A loop was formed. From the Hong Kong issue we can inspect the role of financial liberalization in the crisis.
To be honest, I am also biased against 「financial liberalization.」 I do not pursue any kind of economism, but this is just pure egoism. Financial liberalization, in particular the lifting of restrictions on foreign financial institutions would be like killing us. Making money was already hard enough , now some other guys want to split the market with you. State-owned enterprises aside, what about the others? I admit, where you are determines what you think, but it’s true. No matter from the public or private opinion, I feel that financial liberalization is more like a sugar-coated shell wrapped in mainstream western economic theory. It&39;s economic competitiveness due to the Plaza Accord. Central banks continue to expand social credit and pursued a loose monetary policy. According to Yukio Noguchi’s 「The Economics of Bubbles,」 (バブル経済學)banks even begged for institutional and personal loans. You want 100 million, I&39;s credit quota, but it&39;s like suddenly covering the mouth of an athlete during a 100-meter sprint. The huge economic bubble burst instantly.
The darkest hour has come. Japanese government response was exceptional and inconsistent. No wonder some people suspected this was a conspiracy by the Japanese government. However, we know this for sure，the Plaza Accord was not the fundamental cause of Japan&39;s central bank, also supports this view. The original words in his book 「The Lessons from Japan&39;s appreciation itself. Instead, the government took the wrong fiscal and monetary policies. The high increase in interest rate dried up the liquidity in the market suddenly. 「Liquidity Disappear Ability」 first attacked the stock market. The Nikkei index started to drop from the high point in December 1989 and slumped 20% in dozens of days. The break in the market triggered fear and everyone started to panic selling.
Although somebody tried to bottom fishing, but after a bit of a correction, the stock market slumped in a faster speed and fell by 50% in just ten months. We cannot even describe the loss in 「billion,」 you』d have to use 「trillion.」 270 trillion Yen evaporated from the stock market during this period. Darkness shrouded the entire Japanese financial markets and choked every investor&39;s capital market was turned into a living hell. Now let’s look at the real estate market. In March 1990, Japanese government issued 「Regulations for the controlling land-related finance」 to tighten the real estate credit. The policy marked a halt of blood transfusions into the real estate market.
Changes in market general trend have led to large amount of selling. Sellers sold at lower prices and continue to reduce prices if there was no buyer. No one was buying new houses which was undersupplied before the bubble burst. According to data from the Japan Statistics Bureau. As we can see, the number of new apartments sold in Great Tokyo Area has changed since 1991. The number went down a third in two years, and that&39;ve found some more extreme cases. The assets of a suburb property fell to the one seventh of its highest point . Imagine it, you used to have four bedrooms with a large living room, now you are only left with a bathroom. The collapse of several markets has led to a surge in the non-performing loan ratio of Japanese financial institutions. Financial institutions, including banks, have been severely damaged. There even began to have cash flow problems. Countless bank went bankrupt in the years after the crash. Not even to mention the financial SMEs. The storm finally entered the real economy. Without help, numerous Japanese entity enterprises went bankrupt one after another. Even companies that aren&39;s third-generation leaders. You can imagine this possible conversation: 「Yo man I see your house bought by a Japanese. It’s ok, let’s get it back to you in a few year.」
So far, Japan&39;s CPI has spiraled down since 1992. Everyone studied how to save money. Interest was almost negative, and the savings account also charged management fees. No one was willing to take money out of the bank. People did not even want to buy houses with no down payment and zero interest. Good prices were falling year after year, as well as the wages and incomes. The hard-earned money was not planned for consumption and investment at all. Everyone saved it for the winter that was coming. Employed workers worried if they would get fired the next day, unemployed workers only wanted to find a way to survive. They wore and ate whatever the cheapest. People lived like animals. Japan has gone into the abyss of a low-desire society.
The most miserable sufferer in the abyss was the ordinary Japanese. Many of their losses in the housing and stock market were their lifetime wealth. That’s why a lot of them committed suicide. Based on data from the Ministry of Health, Labor and Welfare of Japan, the number of suicides in Japan, especially among men, snowballed between 1995 and 2000. Not until years ago did the number start to fall. Only a few people were beneficial from the disaster. Most 「tool」 and ordinary people became slaves of the new era and fell into the abyss. Except suicide, depression and other mental illness. The rate of missing person in Japan has also risen sharply. Some people fled; others chose to end their lives in quietness. Meanwhile, according to the report issued by the Ministry of Health, Labor and Welfare of Japan, and the &34; by Kenichi Ohmae.
The economic downturn has also partly affected Japanese life and fertility. Otaku culture prevailed among the younger generation. High-class restaurants and Kabuki were closing one after another. More and more people were going to the shrine. The amount of hobo roaming on the street also increased sharply. The consumption level also dropped a lot. People only took public transport and ate food just to keep themselves from starving. Any investment was stopped. Consumers only bought whatever was the best value for the money. Young Japanese were not willing to be in a relationship and start a family. The concept of Dink family also got popular among married couples. Japan&39;s response was weak and lousy which stuck Japan in the abyss of recession for years.
Until 1996, the exposure of large non-performing debt of residential financial firms, the Asian financial crisis, and the deterioration for the past few years became prominent. Since 1997, leading financial institutions such as Sanyo Securities Japan, Hokkaido Takushoku Bank, and Yamaichi Securities went bankrupt. Japanese government finally started to take things seriously and set forth a series of laws to save the financial system. Non-performing assets were investigated and prosecuted.
Government enacted the 「Financial Service Act,」 「Investor Credit Protection Act,」 and most importantly, the 「Financial Revitalization Law.」 Some banks were temporarily nationalized, and non-performing assets were disposed. More than 17 banks were injected with funds. Horizontal integration was promoted among banks. You can understand it as the reorganization of bankrupted banks.
In June 1998, the Financial Services Agency was established and took over the supervisory functions from the Ministry of the Treasury directly. Series of tough interventions allowed capital markets to give positive feedback. Yet, the power base of this central bank&39;s rights and independence greatly increased. One school thought it was a huge conspiracy. Just as the 「Princes of the Yen」 predicted, the central bank has planned all this since the&39;s rise and secretly played a part in the conflict between the central bank and the ministry. The US also promoted financial liberalization while breaking down Japanese Economy.
Although the central bank and the ministry did have years of conflict, but these thought are just absurd. Since I am against conspiracy theories, what I prefer to believe is that: from officials of the Central bank and the Ministry of Treasures; to credit examiners and heads of small financial institutions in commercial banks; to business owners, shareholders and buyers; each level of the capital pyramid was both the victim and the accomplice. Each snowflake in an avalanche merely made the self-interest choices in the context of the times to protect themselves from the crisis as much as possible. To shirk possible and reduce risk as much as responsible was the nature of the whole society.
This was not planned 20 years ago or a plot by the US. There was another reason that Japan performed so incompetent in the crisis. That is the dispute over whether to save the financial system with taxpayer money. This is a hard question. Are we looking for 「fairness」 or 「practicality?」 Choosing fairness means that everyone must endure the hardship together. Choosing practicality means bearing the criticization and allegation. Why should honest people pay for the madness and mistakes of the financial system? Of course, I will go for the practicality. Moreover, according to how different countries responded to the financial crisis, they all adapted this strategy. There were as well many subdivisions under this proposition, such as 「how much of the taxpayer’s money should be used,」 「In what way is the money used」 「who should we save first」 etc.
Therefore, concerning with long time wrangles, and various groups of interest, political forces, public opinion and market changes, behind the disposition of the financial crisis was also a game among all the blocs. Whether in an early or later stage of a crisis situation, even if central banks indeed had the intention to use the crisis for radical reform or with participation of foreign powers. Simply blaming the central bank or a foreign power does not help us to see the whole picture. Any cataclysm is complex and driven by multiple aspects. It&39;s post-crisis deflation became apparent. Deflation has left an indelible mark on the heart of Japanese. They believed that the future will be worse one day after another. No cogitation, no hard-work, no relationship, no marriage, no fertility intention, no consumption. The government&39;s financial sector was smashed to the ground. Their risk appetite was shattered.
Therefore, they highly value the level of risk ever after. The amount of non-performing loans lessened. According to the World Bank, the ratio fell to less than 2% between 2005 and 2007, they became more cautious about oversea investment. The amount of subprime U.S. assets that Japan had was the least in developed countries. These have increased Japan&39;s overall unemployment rate has slowly recovered from 2003. The solid foundation was functioning well.
Furthermore, Japan is still at the front end of the world industrial chain. Japan still occupies the core position in some high-tech subdivision industries such as semiconductors, display equipment, machine tools, etc. Many Japanese companies have quietly transformed in the &34; They abandoned home appliance manufacturing. Sharp Corporation was sold to Hon Hai Precision Industry; Haier acquired the refrigerator and washing machine sector of Sanyo; Toshiba also sold its White Goods sector to Midea Group. Instead, they turned around and chased for upstream technological breakthrough. Even a few well-known companies made themselves disappear in the consumer market and turned into future materials, artificial intelligence, biomedical, future energy, robotics and other areas. Our powerful competitor is breaking through the difficulties and recovering from the catastrophe. During the pandemic we even received medical supplies and blessing that said, 「Lands apart, sky shared.」
Japan&39;s economic cycle was the situation of ordinary Japanese under the economic collapse. Especially the generation that suffered the most from the disaster and that desperate, lifeless society.
Our generation believe that 「future will always be better.」 We will have more opportunities and higher earning. Good prices and asset prices will rise, and society will progress. The world is developing, everything is moving forward. Everyone was convinced by 「The future will be better.」
However, when you stand back a little bit and take a closer look. Maybe we are living in a 「special case,」 a period of economic growth. We mistakenly think that the whole world must follow 「the future will be better」 as if it was a rule. The world may not be only 「inflating,」 It could also be 「deflating.」 When we are enjoying the spirited spring, we must not forget the freezing winter. You are just so happened to be in the booming spring. From food, clothing and housing to value realization, these all rely on a stable and upward economic environment. Yet, it’s hard for us to realize, this state of being comfortable and accustomed to us is a luxury and we』ve become numb of it.
This enviable numbness was neither readily available nor a product of nature. It came from the exploration, endeavor and toil of China’s economic development history. It marked each of the ferocious campaign in the capital vortex. It illustrated the complex diplomatic and economic struggle. It represented a decades of hard work by the descendants of 「divine land.」 It stood for the laborious accumulation through extensive trade and numerous Chinese-made. It praised the solidarity of Chinese people in every disaster and crisis. It enlarged the tiny, but untiring dedication from all walks of life. Our generation just happened to be born in the spring. Indeed, this numbness is luxury, but what’s more extravagant are the insight and treasure. I will have to rephrase that sentence—we should cherish the economic milieu we have now and grasp every opportunity in life.
Capital never slumber, C U